Immediate solutions needed to save KQ

July 31, 2015
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Many are still not content with the reasons the airline gave for making such a huge loss, ever to be witnessed by a listed firm in Kenyan history/file
Many are still not content with the reasons the airline gave for making such a huge loss, ever to be witnessed by a listed firm in Kenyan history/file
NAIROBI, Kenya, July 31- A Sh26 billion net loss for Kenya Airways (KQ) within twelve months is something that has left investors and Kenyans wondering when exactly the rain started beating the ‘The Pride of Africa.’

Many are still not content with the reasons the airline gave for making such a huge loss, ever to be witnessed by a listed firm in Kenyan history.

KQ attributed the loss to volatility of exchange rates, intense competition especially from Middle East carriers as well as terrorism that led to travel advisories, fluctuation of oil prices and the international regulatory environment.

The airline industry as a whole has continued to struggle due to financial crisis experienced in 2008.

“There has been a significant decline in both business and leisure travel with the later being most hit. Global growth remains sluggish overall with probably the United States being in a better shape. As part of the recovery, you would expect that delicate and sensitive sectors in the domestic economies would be given incentives, probably temporary subsidies as they chart out the phase, “Nicholas Malaki, a research analyst at PineBridge Investments told Capital FM Business.

But even as all eyes are keen on what exactly has eaten the national airline, research analyst at ABC Capital Joshua Otiende believes the best thing for now is to look for immediate solutions that will keep KQ running smoothly.

Realign the whole business model

I am one person who believes that Kenya Airways has a bright future but that will not happen just like that. KQ needs to realign its business as of now and this will generally involve changing the way
the company does business, like its business model. At the same time they need to re-look at a lot of contracts they had signed.

Come up with new debt restructure plan

Another opportunity for them is to look at the debts they have and how well they can manage them. This can involve converting them to equities or looking at how to prolong the period of payment. And if they manage to work out the plan for their debts, I think the only problem they have is working under a challenging environment just like everyone else.

Serious costs management

If I was at the management level, I would really look at costs. They are really incurring a lot of costs especially in terms of fuel. I would re-look at the hedging contracts they have as well as the fleet management. On fleet issue, they took a huge amount of money to bring in new planes that were grounded at the airport because routes like West Africa were not operational. So I would look at route expansion to feed on these new aircrafts. Also, what type of contracts were they using to buy these aircraft? This is also something to check.

Very close partnership with the government

Another option for KQ is close partnership with the government. For example the Arabian airlines are really getting huge backings from their governments to compete internationally. I think this is an area we can look at as a country because Kenya Airways is our national carrier.

Meanwhile, Kenya Airways being taken out of the stock market and given to private investors’ looks as the easiest treatment but according to analysts this is not the best solution at the moment. But governance issues mentioned are key and urgent.

KLM the global partner pulling its shares out of KQ maybe a ‘non-issue’ at the moment, they say.

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